Gap isn’t the only retailer with inventory problems

By Andria Cheng

Gap Inc. on Friday fell as much as 5.8% after the parent of Old Navy and Banana Republic reported disappointing March sales and warned that declining traffic and excess inventory would likely cause its first-quarter gross margin to decline at a much faster rate than its drop of almost 3% in the fourth quarter.

In other words, expect Gap to start discounting products to get rid of excess inventory.

Gap’s
/quotes/zigman/227242/delayed/quotes/nls/gpsGPS results mirrored other mall-based retailers, including Zumiez Inc. and Buckle Inc., that also reported declining March sales after snowstorms in February led to store closings. Store traffic didn’t recover at the desirable pace in March. Retailers also blamed a late Easter for hurting sales. But weather and Easter impact aside, retailers like Gap should shoulder some of the blame, analysts said.

“Gap’s spring assortment has not been well received by shoppers,” said Sterne Agee analyst Ike Boruchow. “From what we can tell, the product is lacking the ‘pop’ that carried it the past 24 months, with an overemphasis on neutral colors and no call to action on the bottoms business. Given order flows, this will likely persist through summer with an inflection potentially waiting for fall.”

Canaccord Genuity analyst Laura Champine said Gap’s results, with a 6% March decline after a 1% drop a year earlier, marked its worst two-year stacked sales performance since July 2010.

“We expect elevated promotional levels to persist as (Gap) has been unable to clear out excess inventory on the lower sales,” Champine said.

But inventory issues aren’t exclusive to Gap. Just look at the table above that shows the gap between retailers’ sales rate and their inventory growth rate.

The reshuffling of the retail deck has led women’s clothing retailer Coldwater Creek
/quotes/zigman/12156907/delayed/quotes/nls/cwtrCWTR to file for bankruptcy with plans to conduct liquidation sales. The company said its efforts in the past six months to find a buyer or capital to fund its business have failed.

The stock slumped 32% on Friday to 13 cents a share. At its peak in 2006,Coldwater Creek traded at a closing high of $124. On the other hand, Ann Taylor parent Ann Inc.
/quotes/zigman/4344868/delayed/quotes/nls/annANN has jumped a third the past year to $40.06, versus its 2006 peak of $45.

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About Behind the Storefront

Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.